Describe the problems associated with practicing countercyclical policy
One problem is identifying where on the cycle's phase the economy is, and what path it is following. If a
phase is ending, intervening may exacerbate problems associated with the phase that is just beginning. (For
instance, countercyclical policy to fight a recession can create inflation in a boom.) Another problem is
deciding how much countercyclical policy to use in order to avoid overkill or underkill. The existence of an
administrative lag, that is, the time interval between deciding on an appropriate action and the execution of
that policy, can also undermine the effectiveness of countercyclical policy. The longer this lag, the less
effective the countercyclical policy may be due to changes in the economy's position on the business cycle.
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The short run:
A. means the firm cannot increase or decrease at least one of its inputs. B. means that output cannot be changed. C. means the price of output is fixed. D. All of these are true.
The accumulation of investments in people, such as education and on-the-job training, is known as
a. physical capital. b. human capital. c. efficiency wage. d. compensating differentials.
A futures contract is an example of:
A. a contract that is traded but is not a financial instrument. B. an instrument used solely by financial institutions. C. a derivative instrument. D. a high-risk security that will only have value if certain events occur.
Asset price "bubbles" are more likely to occur when interest rates are relatively low.
Answer the following statement true (T) or false (F)